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FOREWORD 


ON 


Taxation  in  California 


l88ue<]  by  the 

STATE  TAX  COMMISSION 

Sacramento,  California 
AUGUST,  1916 


CONTENTS. 


Page. 

CLASSIFICATION    OF    LAND _ 5 

CITY   ASSESSMENTS    7 

ONE  ASSESSMENT  FOR  ALL  TAX  PURPOSES—- 8 

NOTIFICATION   OF   TAXES   AND   ASSESSMENTS 9 

COLLECTION   OF   TAXES   AND   ASSESSMENTS 10 

RECORD  OF  CONSIDERATION  IN  REAL  ESTATE   TRANSFERS 10 

COUNTY  CHARTERS  AND  TAX  LIMITATION 11 

EXEMPTION    OF   CHATTEL   MORTGAGES 11 

TAX    ON    AUTOMOBILES    12 

INCOME     TAX     — 12 

TAX  ON   EXCESS  LAND  VALU£]S . 12 


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PREFACE. 


AUTHORITY    AND    INTENT    OF    THE    STATE    TAX 
INVESTIGATION. 

Chapter  194  of  the  Statutes  of  1915  makes  provision  for  certain 
officei-s  "to  investigate  the  systems  of  revenue  and  taxation  in  force  in 
this  and  other  states,  and  particularly  to  examine  into  any  and  all 
matters  appertaining  to  the  subjects  of  revenue  and  taxation  in  this 
state." 

Also,  "a  special  investigation  and  report  upon  the  matter  of  the 
relative  burden  of  taxation  borne  by  general  property  values  and  cor- 
poration property  values  taxed  directly  by  the  state  under  the  existing 
system  of  taxation." 

Also,  "a  special  investigation  and  report  upon  the  matter  of 
reimbursements  to  counties  which  sustain  loss  of  revenue  by  the  with- 
drawal of  railroad  property  under  the  provisions  of  section  14  of 
Article  XIII  of  the  constitution." 

The  findings  of  this  investigation  are  to  be  reported  to  the  legislature 
which  meets  in  1917. 

The  matter  of  the  investigation  upon  the  relative  burden  of  taxation 
as  between  general  property  and  corporation  property,  and  also  the 
investigation  in  regard  to  the  reimbursements  to  counties  for  loss  of 
revenue  because  of  the  withdrawal  of  railroad  property,  will  be  based 
upon  the  conclusions  obtained  from  the  appraisements  of  property  of 
these  two  classes.  This  work  as  yet  has  not  reached  the  point  where 
any  conclusions  can  be  drawn,  and,  therefore,  will  not  be  touched  upon 
at  this  time. 

The  Commission  thought  wise,  however,  to  enter  into  a  discussion  of 
some  of  the  important  matters  pertaining  to  the  general  subject  of 
revenue  and  taxation  in  this  state,  and  for  that  purpose  is  issuing  this 
first  discussion  in  the  form  of  a  foreword  on  taxation  in  California. 

It  is  the  intention  of  the  Commission  to  follow  this  with  new  matter 
and  fuller  discussions  of  some  of  the  subjects  herein  contained  after 
the  same  have  been  subjected  to  criticism  by  the  press  and  by  the 
public. 


—  5  — 


INTRODUCTORY. 

The  object  of  this  foreword  is  to  get  before  the  press  and  the  public 
in  brief  shape  some  of  the  questions  on  taxation  which  seem  worthy  of 
serious  thought,  with  the  idea  of  inciting  study,  criticism  and  debate. 
This  is  not  our  final  word  on  the  subjects  discussed. 

If  we  appear  to  draw  definite  conclusions  it  should  be  known  that 
our  minds  are  wide  open  for  more  light.  We  hope  for  honest,  vigorous 
discussion. 

Every  person  who  owns  property,  who  pays  rent,  who  eats  and  lives 
is  interested  vitally  in  the  question  of  taxation. 

We  desire  to  obtain  personal  opinions,  whatever  they  may  be,  on 
any  one  of  the  subjects  outlined,  or  on  any  other  phase  of  the  question 
of  taxation. 

CLASSIFICATION    OF    LAND. 

One  of  the  greatest  faults  in  our  present  system  of  taxation  is  the 
lack  of  attention  to  the  matter  of  remedying  defects  by  the  introduction 
of  practical  methods  in  establishing  equality  in  assessment. 

Practically  no  fundamental  change  has  taken  place  in  our  methods 
of  assessments  since  the  state  was  admitted  to  the  Union.  The  marked 
changes  are  those  that  have  been  forced  through  the  necessities  of  the 
gro\si;h  of  the  larger  cities.  Here  some  of  the  modern  methods  in  valua- 
tion have  been  put  into  effect,  but  in  the  outlying  districts,  in  the  vast 
expanse  of  our  millions  of  agricultural  acres  in  the  state,  no  adequate 
effort  has  been  attempted  toward  proper  valuation. 

As  a  matter  of  fact,  it  is  as  feasible,  and  perhaps  simpler,  to  lay  a 
proper  foundation  for  the  assessment  of  farm  lands  than  for  city 
property,  because  the  shifting  and  changing  conditions  are  not  so 
marked,  nor  are  they  of  the  same  nature. 

Study  by  experts  needed. 

We  are  convinced,  after  several  months'  study  and  actual  field  work, 
that  it  would  be  of  great  value  from  a  standpoint  both  of  economy 
and  equality  that  the  agricultural  land  of  the  different  counties  be 


—  6  — 

thoroughly  studied  by  experts  placed  in  the  field  to  gather  data  on 
all  of  the  physical  conditions  entering  into  the  matter  of  land  value. 
This  should  include  classification  of  the  specific  soil  and  water  condi- 
tions, definite  summary  of  the  topography  and  actual  survey  of  the 
crop  covering,  of  accessibility,  and,  in  many  regions  of  the  state,  a 
districting  as  to  climatic  conditions. 

It  is  the  belief  of  this  Commission  that  all  of  this  data,  together 
with  sales,  exchanges,  crop  value,  income,  rents  and  other  information, 
should  be  obtained  and  kept  up  to  date  and  made  a  matter  of  record 
in  the  office  of  the  county  assessor;  that  in  that  office  there  should  be 
platted  and  tabulated  all  the  information  that  is  available  which  enters 
into  the  determination  of  land  values  under  the  extremely  variegated 
conditions  which  exist  throughout  the  state  of  California.  Such  a 
study  would  also  include  the  cruising  of  timber  for  the  purpose  of 
equitable  taxation. 

Would  be  valuable  to  private  persons  as  well  as 
departments  of  government. 

This  data,  while  serving  primarily  for  the  assessment  and  equaliza- 
tion of  tax  values,  would  also  be  extremely  valuable  in  many  other  ways. 
It  would  serve  as  a  foundation  for  appraisements  of  all  kinds,  not  only 
for  private  purposes,  such  as  for  the  information  of  banks  and  of 
private  individuals  looking  for  investments,  but  would  also  serve  an 
additional  public  purpose  for  the  use  of  many  state  departments,  such 
as  the  Corporation  Commissioner,  the  Banking  Department,  the  State 
Water  Commission,  the  Insurance  Department  and  the  Railroad  Com- 
mission, and  in  addition  it  would  be  a  prime  necessity  if  the  state  or 
the  government  entered  into  the  matter  of  rural  credits. 

Assessor  not  always  at  fault. 

The  fault  of  inequality  of  assessment  in  the  state  does  not  lie  to  any 
great  extent  at  the  door  of  the  local  assessor,  unless  on  some  rare  occa- 
sion that  official  has  been  given  the  means  and  facility  with  which  to 
gather  the  proper  data  upon  which  to  make  a  proper  assessment. 
Usually  he  is  undersalaried  for  the  importance  of  the  position  and  has 
been  given  just  enough  help  to  put  the  assessments  each  year  on  the 
rolls,  without  the  facility  to  go  into  the  detail  necessary  to  the  deter- 
mination of  relative  values.  Under  the  law  the  roll  must  be  written  at 
a  certain  time,  and  with  the  means  available  the  assessor  has  each  year 
simply  been  able  to  comply  with  the  letter  of  the  law. 


The  fault  lies  to  a  considerable  extent  in  the  fact  that  the  people  of 
the  community  and  the  state  have  not  recognized  that  there  is  something 
more  to  an  equitable  assessment  than  the  mere  gathering  of  ownerships 
and  hurried  placing  of  values.  They  have  failed  to  realize  or  admit 
that  the  assessment  of  property  is  the  most  important  thing  in  the  levy 
of  a  tax,  and  until  this  fact  is  brought  home  and  recognized  there  will 
continue  to  exist  the  great  inequality  in  the  tax  burden  among  the 
different  property  owners. 

This  proposal  would  result  in  a  big  constructive  work  of  inestimable 
value  to  the  state.  Actual  field  work  accomplished  by  this  Commission 
has  shown  the  importance  of  the  work. 

Present  system  inequitable. 

In  the  limited  acreage  covered  we  found  some  acreage  not  on  the 
assessment  roll.  We  found  improved  orchard  acreage  assessed  for  only 
about  half  the  area  actually  covered  by  orchard.  We  found  good 
bottom  land  assessed  as  poor  land,  and  other  discrepancies.  These  are 
things  for  which  the  assessor  is  hardly  to  blame,  because  a  classification 
and  survey  is  necessary  to  properly  establish  the  facts. 

The  indication  from  our  study  is  that  the  first  cost  would  average 
around  six  cents  per  acre.  The  cost  of  keeping  the  records  up  to  date 
would  be  negligible  unless  additional  details  were  added.  The  work 
should  be  handled  uniformly  throughout  the  state. 

Pioneer  work  along  this  line  is  now  being  done  in  Glenn,  Shasta 
and  Tehama  counties  by  their  assessors  and  boards  of  supervisors,  on 
their  own  initiative,  notwithstanding  the  fact  that  assessment  under 
the  old  methods  was  as  well  done  there  as  in  any  of  the  counties. 
This  Commission  has  no  definite  knowledge  of  results  in  those  counties 
to  date,  but  is  looking  with  interest  to  the  time  when  the  independent 
work  there  may  be  advanced  far  enough  to  evidence  conclusions  as  to 
its  value. 

CITY  ASSESSMENTS. 

Of  equal  importance  with  agricultural  land  classification  is  the 
proper  compilation  and  assembling  of  data  and  the  scientific  determina- 
tion of  values  on  city  property.  A  few  of  the  cities  of  California  have 
attempted  assessments  of  city  lots  after  the  Davies,  Hoffman,  Lindsay- 
Bernard,  Somers,  Harmon  Neill  or  Newark  rules  for  obtaining  relative 
values.  In  some  instances  mathematical  rules  for  valuing  buildings 
have  been  applied. 


—  8  — 

So  far  as  we  know  in  this  state,  the  city  and  county  of  San 
Francisco  made  the  first  serious  attempt  in  scientific  assessments,  and 
has  in  the  past  ten  years  been  well  to  the  front  in  methods  of  assess- 
ment. We  are  constrained  to  believe,  however,  that  the  consummation 
of  equity  has  been  seriously  handicapped  by  the  lack  of  means  to  make 
a  proper  intensive  study  of  current  conditions. 

In  other  of  the  larger  cities  advance  has  been  made  along  this  line, 
but  in  the  main  it  has  been  slow  and  inadequate.  In  the  city  of  Marys- 
ville  several  years  ago  a  citizens'  committee  did  notable  work  in 
equalizing  the  assessed  values  of  land,  improvements  and  stocks  of 
merchandise.  The  effectiveness  of  their  labor  is  being  lost  because  of 
no  adequate  means  for  maintaining  same. 

In  truth,  an  equitable  system  of  assessment  and  taxation  is  like  a 
road;  however  good  a  foundation  may  be  laid,  it  will  soon  become 
useless  unless  properly  and  constantly  adjusted  and  maintained. 

In  Los  Angeles  County  there  has  recently  been  finished  a  reassess- 
ment of  property  values,  including  city  property,  following  the  lines 
of  the  Somers  system.  As  a  whole,  a  valuable  piece  of  work  was 
accomplished.  It  will  need  smoothing  down  and  adjusting,  naturally, 
and,  above  all,  it  will  need  intelligent  maintenance.  The  present  exper- 
ience of  Los  Angeles  County  shows  the  vital  importance  of  a  law 
limiting  the  gross  amount  of  the  tax  levied  for  any  political  subdi- 
vision, so  that  a  raise  in  the  assessed  value  from  any  cause  cannot 
bring  about  an  increased  burden  of  tax.  We  discuss  this  under  the 
heading  ''County  Charters  and  Tax  Limitations." 

ONE  ASSESSMENT  FOR  ALL  TAX  PURPOSES. 

One  of  the  absurdities  of  our  present  practice  of  assessment  is  that 
there  are  found  two  different  values  for  taxation  in  cities,  one  for 
municipal  and  one  for  county  purposes,  under  a  law  providing  for  a 
full,  cash  value  assessment  for  both. 

The  limitation  of  the  rate  in  most  cities  accounts  for  the  higher 
valuation  by  city  assessors,  and  it  also  shows,  as  pointed  out  elsewhere 
in  this  discussion,  the  uselessness  of  attempting  to  limit  the  amount  of 
taxes  by  a  maximum  rate. 

In  counties  where  the  county  takes  over  the  assessment  of  cities 
there  is  a  tendency  to  increase  the  city  assessments  over  the  county 
assessments,  and  where  the  cities  do  their  own  assessing  with  a  much 
higher  value,  the  tendency  is  for  the  county  assessed  value  to  creep  up 


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—  9  — 

more  rapidly  than  on  outside  property,  where  no  comparison  of  such 
values  is  possible,  so  that  in  both  methods,  under  our  present  practice, 
the  city  property  generally  bears  a  higher  proportion  of  the  county 
tax  than  the  outside  property.  There  is  also  a  noticeable  variation 
between  cities  in  the  same  county.  The  correction  for  this  is  one 
assessment  for  all  purposes  and  one  assessment  at  full  value. 

Logically,  from  a  standpoint  of  economy,  efficiency  and  equity,  there 
should  be  but  one  assessment  for  all  tax  levy  purposes.  Instead  of  two 
offices  and  two  sets  of  officials  covering  the  same  territory  inefficiently, 
there  should  be  one  office  and  one  set  of  officials  properly  and  efficiently 
equipped  to  make  a  real  assessment.  Naturally,  the  county  assessor's 
office  would  be  the  office  to  do  this  work. 

Along  with  the  uniformity  of  assessments  in  each  of  the  several 
counties  should  come  the  co-ordination  of  assessments  throughout  the 
entire  state,  with  sufficient  central  machinery  to  accomplish  the  same 
through  co-operation  on  the  part  of  the  county  officers. 

If  it  is  proposed,  as  it  should  be,  to  have  limitation  laws,  let  those 
laws  be  such  as  will  produce  results  by  placing  a  percentage  limit  upon 
the  possible  increase  of  total  taxes  levied  or  expenditures  recorded  one 
year  over  that  of  the  preceding  year. 

NOTIFICATION   OF   TAXES   AND   ASSESSMENTS. 

It  is  quite  essential  that  something  definite  should  be  accomplished 
toward  a  better  method  of  notification  of  the  existence  of  taxes  and 
assessments  which  become  liens  on  realty.  There,  of  course,  is  little 
excuse  for  any  person  allowing  a  delinquency  to  occur  in  the  matter 
of  the  payment  of  city  and  county  tax,  but  under  our  methods  of 
handling  other  forms  of  taxes,  such  as  special  district,  sewer  and  street 
assessments,  it  is  next  to  impossible  for  many  resident  owners  and 
practically  impossible  for  nonresident  owners  to  be  reasonably  sure 
that  there  is  always  a  clearance  on  the  property  which  they  own. 

If  the  law  is  to  take  the  property  for  the  nonpayment  of  these 
assessments,  surely  there  should  be  some  more  adequate  means  of 
notification.  On  the  other  hand,  the  cost  of  personal  notification  in 
each  particular  instance  of  assessment  would  run  the  overhead  cost  too 
high.  However,  there  is  no  reason  why  provision  should  not  be  made 
for  notification  of  the  assessment  being  carried  along  with  the  county 
or  city  tax  statement  where  an  assessment  for  any  other  purpose  exists. 
This,  we  believe,  could  be  accomplished  by  a  new  provision  of  the  law 
or  by  amendment  to  existing  provisions. 


10  — 


COLLECTION    OF    TAXES    AND    ASSESSMENTS. 

We  suggest  that  it  is  essential  to  the  well-being  of  the  taxpayer  that 
the  collection  of  taxes  and  assessments  be  unified  and  simplified.  It  is 
entirely  practical  that  the  levying  and  collecting  of  all  taxes  and 
assessments  could  be  so  arranged  that  at  one  definite  time  the  property 
owner  would  have  knowledge  of  the  total  amount  of  taxes  and  assess- 
ments standing  against  his  property  and  could  pay  the  same,  or  the 
proper  installment  of  the  same,  with  a  definite  knowledge  that  his  full 
obligations  have  been  met.  It  would  be  no  matter  of  hindrance  to 
public  work,  and  not  impossible  to  have  all  special  assessments  due 
and  payable  in  whole  or  in  part  at  the  two  periods  of  time  when  taxes 
are  payable,  and  it  would  be  infinitely  better  for  the  taxpayer  to  know 
that  at  certain  definite  periods  he  would  be  called  upon  to  pay  his 
obligations,  and  at  no  other  uncertain  time  would  demand  be  made 
upon  him.  In  addition  to  this  there  is  no  reason  why  all  of  these 
collections  should  not  be  made  by  one  agency,  thus  saving  the  duplicate 
effort  and  expense  both  of  the  tax  collecting  officials  and  of  the 
taxpayer. 

RECORD  OF  CONSIDERATION  IN  REAL  ESTATE  TRANSFERS. 

It  is  the  belief  of  this  Commission  that  whenever  a  transfer  of  realty 
is  made  and  recorded  the  actual  consideration  in  dollars  and  cents 
should  also  be  made  a  matter  of  record  along  with  the  transfer  of 
ownership.  The  actual  value  of  property  is  the  basis  upon  which  the 
assessed  value  of  property  is  now  fixed  under  our  law.  The  means  of 
obtaining  definite  and  conclusive  information  as  to  actual  consideration 
in  approximating  the  cash  value  of  property  is  extremely  difficult  and 
uncertain. 

This  Commission  has  made  an  attempt  to  collect  sales  data  in 
different  counties  in  the  state,  and  while  it  realizes  that  during  the 
past  year  or  two  a  minimum  amount  of  sales  have  been  made,  yet  it  is 
almost  impossible  to  get  a  line  on  such  data  as  should  be  available  for 
use  in  checking  values.  The  same  difficulty  has  been  encountered  in 
the  past  when  conditions  were  normal,  so  far  as  the  endeavor  on  the 
part  of  the  state  officials  is  concerned,  as  well  as  that  on  the  part  of 
county  officials. 

The  consideration  reached  in  the  matter  of  sale  of  real  estate  is  a 
matter  in  which  the  public,  in  a  broader  sense,  is  deeply  concerned, 
and  all  data  of  this  nature  should  be  available  for  public  use. 


—  11 


COUNTY  CHARTERS  AND  TAX  LIMITATION. 

Counties  are  gradually  taking  advantage  of  the  provision  of  the 
constitution  granting  them  a  right  to  special  county  charter,  and  a  few 
of  them  in  forming  such  a  charter  are  agitating  the  matter  of  a  limita- 
tion upon  the  tax  rate.  Recently,  for  instance,  Tehama  County  has 
voted  a  new  charter  providing  for  a  limit  on  the  tax  rate  of  $1.65. 

It  should  be  pointed  out  that  the  limitation  of  the  tax  rate  under  the 
existing  tax  conditions  in  California  means  nothing  so  far  as  the 
limitation  of  expenditures  is  concerned. 

The  idea  seems  to  be  prevalent  among  a  large  number  of  people  that 
if  the  tax  rate  itself  is  limited  the  amount  of  taxes  thereby  will  be 
checked,  failing,  evidently,  to  recognize  the  fact  that  there  are  two 
elements  which  enter  into  the  matter  of  taxation:  First,  the  assessed 
value,  and,  second,  the  rate;-  and  that  the  burden  of  tax  can  be  fluc- 
tuated by  the  manipulation  of  either  one  or  both  of  these  factors,  so 
that  the  county  that  votes  a  limitation  of  a  rate  with  the  hope  of 
reducing  taxes  or  controlling  them  is  resting  its  expectation  on  a  false 
premise,  because  it  only  needs  the  raising  of  the  assessed  value  to 
increase  the  amount  of  tax. 

This  Commission  would  suggest  that  the  only  effective  way  of  placing 
a  restriction  would  be  to  place  a  limit  upon  the  total  amount  of  taxes 
that  could  be  raised  yearly  in  a  given  county.  For  instance,  in 
Arizona  the  state  constitution  has  taken  care  of  that  by  prescribing 
that  in  any  one  year  no  more  than  five  per  cent  increase  in  the  total 
amount  of  tax  raised  can  be  levied  over  the  preceding  year  in  any 
county  or  other  political  subdivision.  Along  with  this  is  a  provision 
providing  for  an  emergency  allowance,  good  for  only  one  year,  upon  a 
presentation  of  the  necessity  therefor  to  the  state  tax  body^  which, 
after  public  hearing,  grants  or  refuses  the  increase.  Such  a  measure 
we  advocate  for  California  as  being  one  of  the  most  effective  means 
of  producing  economy  in  governmental  affairs. 

EXEMPTION  OF  CHATTEL  MORTGAGES. 

"While  it  may  not  be  of  first  importance,  this  Commission  would 
suggest  that  there  seems  to  be  no  legitimate  reason  why  a  mortgage 
secured  by  chattel  should  be  subject  to  taxation  any  more  than  a  mort- 
gage secured  by  land.  As  was  true  in  the  case  of  mortgage  on  land, 
the  tax  on  the  chattel  mortgage  is  paid  by  the  borrower.  "We  believe, 
therefore,  that  if  a   constitutional   amendment  is   proposed   making 


—  12  — 

changes  in  the  provisions  regarding  revenue  and  taxation,  the  correc- 
tion should  be  made  treating  all  mortgages  the  same  in  the  matter  of 
taxation. 

TAX  ON  AUTOMOBILES. 

We  suggest  that  it  would  be  much  more  equitable  and  much  more 
easy  and  economical  of  administration  if  the  automobile  were  exempt 
from  local  personal  property  tax  and  a  total  tax  levied  and  distributed 
through  the  state  license. 

INCOME  TAX. 

The  tax  on  incomes  has  been  the  matter  of  much  public  and  private 
discussion  throughout  the  state  during  the  last  two  years  or  more.  It 
was  agitated  and  considered  at  the  last  session  of  the  legislature  as  a 
means  of  producing  revenue  in  place  of  the  abandoned  poll  tax.  It  is 
a  serious  question  as  to  what  extent  the  state  should  embark  upon  this 
method  of  tax,  in  face  of  the  use  of  the  income  tax  by  the  federal 
government.  This  Commission  is  not  favorably  inclined  at  this  time 
to  recommend  an  income  tax  for  the  purpose  of  supplementing  the 
present  tax  system,  but  is  inclined  to  believe  that  if  it  were  substituted 
for  the  tax  on  certain  kinds  of  personal  property  it  would  be  more 
equitable  than  is  the  present  levy  of  tax  on  personal  property.  Particu- 
larly is  this  so  in  regard  to  intangible  personal  property.  If  the  income 
tax  were  levied  as  a  substitute  for  personal  property  tax  it  should  be, 
of  course,  apportioned  back  to  the  several  counties  and  municipalities 
to  the  extent  that  it  would  take  the  place  of  the  tax  on  such  forms  of 
personal  property  as  would  be  exempt. 


TAX  ON  EXCESS  LAND  VALUES. 

Our  problem  of  the  land  in  California  is  becoming  more  and  more  a 
real  danger.  It  is  one  which  should  be  attacked  at  once  in  a  manner 
adequate  to  relieve  the  tension  and  at  the  same  time  to  safeguard  the 
stability  of  our  economic  conditions.  In  so  far  as  this  problem  may  be 
approached  from  the  standpoint  of  revenue  and  taxation,  this  Com- 
mission wishes  to  suggest  an  outline  under  which  a  forward  step  may 
be  taken,  and  presents  it  at  this  time  with  the  hope  that  there  may  be 
the  fullest  public  consideration  given  the  question. 


13  — 


Large  land  grants  make  problem  difficult  in  California. 

The  land  problems  in  California  undoubtedly  are  made  much  more 
difficult  than  in  many  states  of  the  Union  for  a  number  of  reasons, 
among  which  are  the  conditions  growing  up  because  of  large  Mexican 
grants  which  were  accepted  and  recognized  by  the  federal  government 
at  the  time  this  territory  was  annexed  to  the  United  States;  because 
of  the  slowness  with  which  the  agricultural  development  of  the  state 
as  a  whole  has  grown,  and  also  because  of  the  vast  acreage  of  land, 
which,  on  account  of  the  lack  of  natural  crop  conditions  and  undevel- 
oped water,  was  considered  in  the  earlier  days  practically  worthless, 
but  which  now  is  undergoing  a  rapid  development  because  of  the 
intense  usefulness  of  the  land  where  water  is  applied. 

As  usual,  there  was  practically  no  recognition  of  the  fact  that  there 
was  a  problem  until  it  became  apparent  that  the  evils  of  the  present 
system  had  developed  many  difficulties. 

There  are  the  two  extreme  ideas  which  must  be  placated  in  any 
settlement  of  the  trouble.  On  the  one  hand  is  the  old  idea  of  unqualified 
private  ownership  and  control,  without  any  interference  which  would 
check  the  speculative  features  of  land  ownership,  and  on  the  other  side, 
those  extremely  radical  views  that  would  disregard  altogether  property 
rights  and  confiscate  all  land  values  regardless  of  the  equity  of  private 
ownership. 

Large  holdings  of  unimproved  land  against  public  interest. 

This  Commission  desires  to  suggest  some  means  by  which  an  equitable 
adjustment  of  the  trouble  may  be  had  without  allowing  either  of  these 
two  extremities  to  exist.    We  start  with  the  following  statement : 

First.  The  private  ownership  of  large  holdings  of  land  unimproved 
and  uncultivated  is  recognized  by  the  constitution  of  this  state  as  being 
against  public  interest,  forcing,  as  it  does,  the  purchaser  who  wishes 
to  improve  his  land  to  pay  to  the  holder  the  speculative  and  socially 
increased  value  of  such  land. 

Second.  The  holding  of  large  interests  in  improved  land  and  the 
consequent  accretion  of  value  thereto  because  of  its  situation,  and  not 
because  of  the  efforts  of  the  owner,  is  also  against  public  interest. 


—  14  — 

Third.  Fundamentally,  every  man  has  the  right  through  his  labors 
to  a  reasonable  living  from  the  land,  and  there  should  be  recognized  a 
maximum  value  of  land  which  he  is  entitled  to  obtain  and  hold  at  a 
minimum  cost  as  long  as  he  makes  beneficial  use  of  the  same. 

Tax  suggested  to  discourage  such  holdings. 

Assuming  the  above  statement  to  be  correct,  we  suggest  an  additional, 
or  excess,  tax  on  increased  land  value  as  follows : 

A  maximum  excess  tax  on  the  future  increase  in  value  of  all 
unimproved  land  or  land  not  put  to  any  beneficial  use. 

A  lesser  rate  of  tax  in  the  case  of  land  improved  or  being  put  to 
beneficial  use. 

The  exemption  from  such  tax  for  each  individual  of  a  reasonable 
holding  of  improved  or  beneficially  used  land. 


This  Commission  does  not  at  this  time  wish  to  propose  any  definite 
value  for  exemption,  but  purely  as  a  matter  of  discussion  we  would 
suggest  that  the  value  of  the  exempted  homestead  right,  namely  $5,000, 
be  considered  as  a  starting  point,  it  being  accepted  tentatively  that 
this  would  be  the  proper  equitable  allowance. 

"With  these  figures  as  a  base,  our  suggested  plan  would  mean  that 
every  person  owning  improved  land  or  land  being  put  to  some  beneficial 
use,  up  to  the  value  of  $5,000,  should  be  exempt  from  an  excess  tax  on 
the  increased  land  value;  that  all  land  not  in  use  should  be  subject  to 
a  maximum  tax  of  such  character ;  that  all  property  in  use  in  excess  of 
the  exemption  should  be  liable  to  a  lighter  tax  than  the  unused 
property;  that  the  tax  should  be  levied  so  that  at  definite  periods  a 
substantial  proportion  of  the  value  which  has  been  added  to  the  land 
because  of  site  or  social  conditions  would  be  collected  and  paid  into 
the  treasury  of  the  state. 

Revenue  from  this  source  to  be  put  in  permanent  fund. 

The  money  collected  from  this  source,  we  would  suggest,  should  be 
kept  in  a  permanent  fund  to  be  invested  in  securities  issued  for  the 
building  of  roads  and  other  similar  public  improvements;  the  develop- 
ment of  reclamation  or  irrigation  districts ;  for  rural  credits,  or  in  any 
other  way  that  would  bring  about  an  increase  in  social  value  which 
would  in  turn  be  returned  to  the  fund.  We  further  suggest  that  the 
interest  which  would  be  collected  from  the  investments  and  loans  of 


—  15  — 

the  fund  should  be  used  in  the  support  of  public  schools  or  other  general 
governmental  purposes,  thus  being  utilized  to  reduce  uniformly  the 
tax  burden  throughout  the  commonwealth. 

This  Commission  deems  this  matter  of  vital  importance  to  the  future 
welfare  of  the  state.  Complete  details  of  the  proposed  innovation 
should  be  worked  out  only  after  the  fullest  public  discussion  as  to  the 
merits  of  the  fundamental  idea. 

Commission  asks  for  criticism  and  suggestions. 

AVe  ask  for  criticism  and  suggestion  in  order  that  a  proper  and 
equitable  start  may  be  made,  not  only  toward  controlling  the  great 
speculative  features  of  our  land  ownership,  but  also  toward  building 
up  small  land  holdings  and  developing  our  unused  land,  together  with 
what  must  necessarily  follow — the  protection  of  legitimate  land  invest- 
ment and  stable  land  values,  and  a  more  equitable  distribution  of  the 
burden  of  taxation. 


—  16 


BIBLIOGRAPHY. 

Those  who  desire  to  make  a  further  study  of  taxation  will  find  the 
following  books  interesting: 

ON   GENERAL  TAXATION. 

Government  Finance  in  the  United  States.     (1915.) 
By  Carl  C.  Plehn.     (A.  C.  McClurg  Co.) 

Introduction  to  Public  Finance.     (3d  Ed.  1911.) 
By  Carl  C.  Plehn.     (Macmillan  Co.) 

Essays  in  Taxation.     (1913.) 

By  E.  R.  A.  Seligrnan.     (Macmillan  Co.) 

The  Shifting  and  Incidence  of  Taxation.     (1910,  3d  Ed.) 
By  E.  R.  A.  Seligrnan.     (Columbia  University  Press.) 

Reports  of  National  Tax  Association,  Vols.  I  to  IX. 
Taxation  of  Land  Values  in  American  Cities.     (1911.) 
By  Benjamin  C.  Marsh. 

The  Taxation  of  Land  Values.     (1915.) 
By  Chas.  B.  Fillebrown. 

ON  THE  SINGLE  TAX. 
A  B  C  of  Taxation.     (1909.) 

By  Chas.  B.  Fillebrown.     (A.  C.  McClurg  Co.,  Chicago.) 

The  Taxation  of  Land  Values.     (1915.) 

By  Louis  F.  Post.     (Bobbs-Merrill,  Indianapolis.) 

OPPOSED  TO  THE  SINGLE  TAX. 
Single  Tax  Exposed.     (1914.) 

By  Chas.  H.  Shields.     (Trade  Register,  Seattle,  Wash.) 

The  Truth  About  Single  Tax.     (1912.) 

By  Geo.  Falloon.     (Journal  Printing  Co.,  Adrian,  Mo.) 

ON  THE  INCOME  TAX. 
The  Income  Tax.     (2d  Ed.  1914.) 

By  E.  R.  A.  Seligrnan.     (The  Macmillan  Co.,  N.  Y.,  $3.) 

Income  Taxation.     (1910.) 

By  K.  K.  Kennan.     (Burdick  &  Allen,  Milwaukee,  Wis.) 


California 

State  Printing  Office 

1916 


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